Linsanity in China? The Plague that Could Change a Country

February 2012 may forever be known to NBA fans as the time the nation (and the world) caught the epidemic known as Linsanity.  Jeremy Lin is the perfect underdog story, to some extent: a Harvard graduate, who failed to get drafted in the NBA, was cut by 2 teams, until finally flourishing on the New York Knicks.  But what does this have to relate to economics?  The Economist blog states that the people of China, while currently rallying around Lin, may not share the same feelings from their government towards the Asian-American player.

The blog goes on to discuss the numerous reasons, but the one that stands out most is the clear cut opportunity that Lin has been given over his lifetime.  The United States system has allowed Lin to excel not only in athletics, but in academics.  His success in both fields landed him at the most prestigious university in the world, along with playing basketball at the highest level of competition.  At the current time, China doesn’t offer the ability to gain this similar experience, and it may hurt the overall perception by Chinese citizens.

If Chinese people rally around Jeremy Lin, a man who was able to accomplish to very different trades, and see the lack of opportunity in their own country, what incentive does this show to future generations when the youth attempt to pursue their dreams?  I believe that it is essential to have exposure to an array of skills, whether it is sports, academics, or music.  The feeling of becoming pigeon-holed because the opportunities are not available is something that I cannot imagine and would not hope for anyone to experience.  In fact, I could see the consequences building up beyond the individual sunk potential.  The lack of exposure could cause less economic growth and development due to losses in critical thought and interpersonal connections via cross-cultures. 

I may be going out on a limb with this thought, but the matter is that one person can truly make an impression on youth.  In America, many will see Lin and be inspired to not only become a great athlete, but to succeed in the classroom.  In China, the opportunity to reap the benefits from being successful at both of these trades may not be there due to the current position in the Chinese system.  I am highly interested to see how China as a whole reacts to the Linsanity and what effect he may have on the country in the future.

References:

1. “Stop the Linsanity?”. The Economist. http://www.economist.com/blogs/banyan/2012/02/chinas-new-sports-problem

  

And the Manufacturers Come Marching Back...

The past month has been filled with questions on the growth of the manufacturing industry in the United States.  First, corporations were making claims to bring back manufacturing.  Many economists didn’t buy this.  Then, the reports were released of the 50,000 jobs added in January.  Now, more talk by large corporations claim they plan to bring more jobs back to America. (Reuters)

CEOs from Boeing and GE told Reuters that they have witnessed overexpansion within the global economy, and the competitive labor costs in the United States matched with the required technology costs has allowed for plenty of growth in the future for the American economy.

A completely separate point was made by the Manufacturing Institute and Deloitte: 600,000 jobs exist, however, the supply of skilled workers to fill the positions is lacking.  Executives claim to be looking for students educated in the fields of science, math, technologies, and engineering.

The statement makes me wonder the truth about the barriers to hiring for the machinists positions.  Tons of students are coming out of four year universities, and I believe that the difficulty doesn’t come from the lack of qualified job seekers, but the difficulty in matching these candidates to the specific job position.

A prime example for skill matching can be seen on the campus of the University of Oregon.  There is a willingness to pay that many Oregonians feel is far too high when it comes to leaving the state of Oregon.  While there may be positions outside of the state of Oregon, students fresh out of college still want to seek positions in Portland. 

Another problem comes into play is the idea of working in a manufacturing position.  The requirements would surely require one to be working long hours in a factory, and from my personal experiences, the current generation has formed quite a bias towards this work.  With videos and educational reports over the years telling us of the terrible conditions found in factories, whether it is the accidents or the strain that these positions may place on a person, the costs do not outweigh the salary and employment. 

I believe that if these problems can be solved, there is a small amount of growth that can be seen the manufacturing industry in the United States, and the currently vacant slots will be filled up once the proper candidates are matched with the positions.  But as I have stated in the past, the uncertainty towards corporations striving for cheaper variable costs will always exist, and the long term sustainability in manufacturing will surely be tested.

References:

1. Malone, Scott.  “After ‘Lemming’ Exodus, Manufacturers Look to U.S.”. Reuters. http://www.reuters.com/article/2012/02/13/us-usa-manufacturing-onshoring-idUSTRE81C1B720120213

Wall Street: How Things Haven't Changed

After I wrote in a previous post on credit cards and consumer faith in the financial industry, I chose to turn the television on to relax my mind for a bit.  While scanning through the channels, I stumbled across Wall Street, the 1987 critically acclaimed film that portrayed the malicious world that is the free market.

Cutthroat, power hungry brokers and their investors push around shares of company's to make a simple dollar. As Charlie Sheen's character is sucked into the world of insider trading and other unethical trade practices, the film truly holds up what remains a problem in today's society, or at least how the public perceives it.

While the SEC has tightened greatly since 1987, we can still see why Americans have lost faith in capitalism.  The financial industry has seen tremendous growth in the number of members in the 1% category, and their wealth comes at the hands of many people's downfalls.  The concept of the art of unethical trading is questioned in the film when Bud Fox asks Wall Street legend Gordon Gekko, "When does the game end?"  The question lingers today, and begs the question of when the social costs have finally hit such a large hole?

If I learned anything from the film, the importance of expectations is a fact that I confirmed.  What the market perceives to be valuable (even if it is simply overstated by high volume traders) can cause an eruption.  A shot heard 'round the world.  On the other hand, a single whisper might send a thriving corporation into bankrupt.

Last year, the S&P bond ratings lowered the US bonds from AAA to AA, a downgrade that sent investors running to the hills.  Many economist felt the downgrade was unnecessary and put false perception in the eyes of investors.  The truth remains that control remains in the power of who controls the access points in society.

The S&P downgrades, which have been occurring often in the last year, should send warnings to investors, that perhaps putting all of one's eggs in the same basket isn't wise.  I am not saying S&P is a hoax; but, we should always gain access to as many sources as possible.  Make sure to check the credibility and react in ways that benefit not only ourselves but the social wealth of the American and global economy.

References:

1. Brandimarte, Walter. "United States Loses Prized AAA Credit Rating from S&P". Reuters.  http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-idUSTRE7746VF20110806 
2. Wall Street (Film). 1987.    

Part 1 of 3: Big Steps to Baby Steps for Greece's Economy

Greece is finally making progress.  After two days of rioters (around 15,000) protesting the current stance in Greece, austerity has been planned in the first of three steps to a second bailout in three years.  CNN has reported that Greece will now move forward to avoid a 14.5B Euro bond default due in March.  As of now, the total amount of debt is 130B Euro.  Prime Minister Lucas Papademos believes the austerity package will push Greece out of its problems.  However, this comes at the cost of potentially 15,000 state worker's jobs, lowered budget, and a 22% reduction in wages.

With the second bailout in the last few years, many question whether Greece should jump ship and leave the Euro.  Chief Global Economist Erik F. Nielsen reports the dangers that would follow Greece if they try to leave the Eurozone.  Nielsen believes that in the short run the EU will be harmed, however, can overcome the loss in the long run.  Greece is a different story.  He believes they will struggle to recover in both scenarios, and the short run will cause a further drop in Greece's economy. 

For the EU, short run struggles would make sense if Greece chose to leave.  With countries (including Germany) putting tons of credit to support Greece bonds and investments, the picture of not getting paid back would create shocks throughout Europe and the global economy.

It should be interesting to follow up on the next two parts of the bailout process. Greece may almost come out of the woods, but with Italy, Portugal, and Spain experiencing economic woes, we likely haven't seen the end of the Eurozone crisis.

References:

1. Stoukas, Tom. “Rioters Burn Buildings as Greek Parliament Votes on Cuts”. Bloomberg. http://www.bloomberg.com/news/2012-02-11/papademos-appeals-to-greeks-on-eve-of-vote-as-party-leaders-back-austerity.html
2. Rooney, Ben. “Greek Parliament Approves Austerity Package”. CNN Money. http://money.cnn.com/2012/02/10/markets/greece_vote/index.htm

Credit Cards with More Risk than Rewards

Got bad credit? First Premier has introduced a credit card available and ready for practically anyone.  But, there is a catch: your wallet will take quite a hit.  

The card, as reported by CNN Money, will be tacked with numerous fees, including higher charges for customer’s card limit ($400/year to start, then rises with higher limits) and an APR of 36%.  The high rates are to incentivize cardholders to pay off debt quickly and be able to gain credit when in all likelihood they would never stand a chance.  However, the card holds major flaws by attacking many people who may not understand or be able to handle the risks that are associated with the card.

Imagine the millions of people who don’t have a high enough credit score to qualify for a credit card with relatively standard rates.  The struggles of constantly being denied and unable to establish (or re-establish) credit would be extremely frustrating.  Now, a card is offered that grants one a credit card, but at extreme risks.  The acknowledgement of the real risk doesn’t necessarily equate to the cardholder, yet the act of passing on what has been denied so many times over may be too hard to overcome.  Is this a fair process? Perhaps potential cardholders should be inherently granted the knowledge of the risks, but in all honesty, First Premier would never be completely upfront with their risky clients.

Next, the problem we hold is the aspect of First Premier’s target market.  Cardholders of First Premier likely hold low credit scores for a reason.  A temptation to be given the “buy now, pay later” methodology highlights what First Premier and their competitors plan to do in this business scheme.  There is an incentive to see many cardholders fail to pay their monthly dues.  The industry may state their interest in helping those in need, but really, the gains of the cardholder come at too high of a risk to justify their so called “helping hands”.  There is a reason that Americans have lost faith in the financial industry.  The poor handling of investments and the untrusting hands of bankers and financial analysts make the consumer struggle with realization that these kinds of deals may not be of best interest in the long run.

While other competitors try to fight the bad reputation of First Premier’s credit card, they too have established interest rates that far exceed the benefits a person gains even with their risk due to low credit.  Until the balance is made, I can’t see a reason these companies should be trusted.  Unfortunately, the target market may fall into the pit for the first time or once again, pinning cardholders in the position they signed up to fight against: poor credit.  

References:

Ellis, Blake. “First Premier’s $400-A-Year Credit Card”. CNN Money. http://money.cnn.com/2012/02/09/pf/first_premier_credit_card/index.htm?iid=HP_River

Slashing Benefits for the Unemployed... What it Means for the Economy

On Thursday, Simon Johnson expressed his beliefs on the state of unemployment in the United State.  Johnson looks at the potential ruling by (what Johnson states) House Republicans to cut unemployment benefits by 40 weeks-worth of the current budget.  The matter of the fact is that this cut in unemployment benefits would be extremely detrimental to so many Americans.  

As of right now, we have been hovering around the 10% unemployment rate.  What we are taught in an intro macroeconomics course is that this number hides many factors that would bloat the unemployment rate numbers.  Underemployment is excluded from the true value of the unemployment rate.  

While these people may have jobs, the hours that are necessary for them to be content is not being reached.  Also, people who have been outside of the workforce and no longer qualify as unemployed are still unemployed, yet these numbers are not calculated to the proper unemployment rate percentage.  Johnson states that 16.9% of the workforce is currently in these positions similar to the counted unemployment.  Disgruntled employees and unemployed people who are discounted create a serious flaw to how America’s economy is currently running.  

On average, the level of long term unemployment usually stands at 10-15% of the total unemployment rate.  In 2008, this number skyrocketed to 45%.  The job market may be improving, but a question must be asked whether we are gathering people who are desperately in need of work (the 45%) and putting them into a position for success.  The cycle seems to be playing against this group.

The positive note to this is that our economy has seen job creation over the past quarter.  With that, there is less need to provide unemployment benefits.  However, the economy is not coming back as fast as the amount of benefits needed are coming in.  In fact, the current position (when including those who should potentially be included in the UR) brings back memories to the 1930’s.  

The biggest problem we seem to be overlooking is that we can’t just have the upper portion of Americans basking in the rewards of an improving economy.  Balance is what will create a sustainable economy.  I have written over the past weeks over and over again that government officials continue to push for corporate tax cuts, education tax cuts, and now unemployment benefits cuts, but what we would like to see is improvement at all levels of our country.  I hope that I have been clear through my posts that I don’t hate the essence of capitalism, but more so the place where it currently stands at the moment, and the long term effects it may have on our economy.  

While Johnson argues the mean spirit that the unemployment benefits cuts imply, I am not so sure I would accept this.  I think many people think entirely rationally, and therefore pursue their own self-interests and personal gain.  But eventually, there comes a point where the costs placed on society ultimately outweigh the benefits of the few.  

Reference:
Johnson, Simon. “Mean-Spirited, Bad Economics”. The Baseline Scenario. http://baselinescenario.com/2012/02/09/mean-spirited-bad-economics/

Don't Run Out of the Tunnel Yet...It's Still Halftime

Super Bowl Sunday is a holiday in America, and with that, comes tons of presents thrown our way: new commercials!  While many of the commercials were silly, or played off the most recent trends in pop culture to date, other commercials attempted a more serious edge.  The one that caught America’s and my own eyes in particular was the Chrysler “It’s Halftime America”, featuring Clint Eastwood.  The commercial is commentated by Eastwood to tell the same tale of Detroit’s struggles through the Great Recession, and how Detroit along with all of America is ready to push forward and “play the second half” (a.k.a. bring the economy back to what it should be).  Check it out:  

As I watched this commercial, I believed the greatness of the marketing that Chrysler has managed to capture in recent years during Super Bowls, but as a budding economist, I am skeptical of the tale Eastwood speaks.

Let’s first look applaud the tremendous decrease in the unemployment rate in the Detroit Region.  As you can see below, the unemployment rate once reached as high as 16.6% in July 2009, and now stands around 9.6% (Bloomberg).  The numbers are truly incredible, and for that, I will state I never imagined Detroit would return to a level hovering around the average national unemployment rate.

                            

All seems to be heading in the right direction, but could the drop in the unemployment rate in Detroit and surrounding areas be too good to be true?

But a bigger question needs to be asked: what caused the improvement in the Detroit economy?  Well, surely we can look at whom else but Chrysler, the company responsible for such a powerful ad at America’s largest sporting event.  What the commercial proclaims is that Detroit is now up and running thanks to the power of manufacturing in the Motor City.  After looking at the statistics over recent months, I was hardly impressed by the standards being set by the large corporation.

The manufacturing employment has certainly gone up in the past year, but the growth rate just doesn’t seem to reach the acclaimed values Chrysler holds for the Motor City.  

While we can see from FRED that the manufacturing employment in the Detroit area has increased since the plummet over the past decade, the growth level is nowhere near what it should be to see a significant effect that could turn Detroit into the once booming metropolis.  In fact, I would argue that Detroit will never get to this point again.   

What I mainly want to point out was the data found in the US Census Bureau last March.  Over the past decade, 25% of Detroit’s population left the Motor City.  At 713,777, the population was the lowest since the 1910 census (CNN).  As stated above, the peak of unemployment in Detroit occurred around July 2009.  Since then, there has been a consistent drop in the unemployment rate. 

After seeing the marginal growth in manufacturing employment, I believe the main cause for the drop in unemployment is heavily skewed by people moving away from Detroit, especially in the last couple years, and a high amount of people who dropped out of the unemployment rate candidacy. 

The city of Detroit has been in an uphill battle for over a decade.  Due to poor job growth, the dying manufacturing industry, and many poor policy decisions (that can be discussed on another day), Detroit is still beaten up and bruised far beyond a multi-million commercial can explain. 

Perhaps Clint Eastwood has me pinned.  I haven’t seen the Motor City that he knows and sees.  But the truth is that the growth just isn’t there for Detroit and the manufacturing industry in America.  The bounce back, while noticeable, isn’t showing signs to bring the once flourishing economy back to the Motor City. 

For those ready to see some touchdowns scored in the second half of the game this year, please don’t be too disappointed, Madonna and Cee-Lo are still lip-synching on stage.

References:

1. “Chrysler Super Bowl Commercial”. http://www.youtube.com/watch?v=tFAiqxm1FDA
2. “Detroit Loses a Staggering 25% of its Population in a Decade”. CNN. http://articles.cnn.com/2011-03-22/us/michigan.detroit.population_1_census-figures-mayor-dave-bing-undercounting?_s=PM:US
3. “Eastwood Heralds Detroit’s Revival in Chrysler Super Bowl Ad”. Bloomberg. http://www.businessweek.com/news/2012-02-06/eastwood-heralds-detroit-s-revival-in-chrysler-super-bowl-ad.html
4. Manufacturing Employment in Detoit-Warren-Livonia, MI. FRED. http://research.stlouisfed.org/fred2/series/DETR826MFGN
5. Unemployment Rate in Detroit-Warren-Livonia, MI. FRED. http://research.stlouisfed.org/fred2/series/DETR826URN